Test Bank for Introduction to Personal Finance, 3rd Edition by John E. Grable

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Introduction to Personal Finance, 3e (Grable)
Chapter 10 Planning for the Future: Retirement and Estate Planning Complete Chapters ✅

1) Which of the following provides retirees with a guaranteed payment from their employer for
the remainder of the retiree's life?
A) Pension plan.
B) Defined contribution plan.
C) Retirement plan.
D) Investment plan.
Answer: A
Explanation: A pension plan (such as a defined benefit plan) provides a retiree with a
guaranteed payment from an employer for the remainder of the retiree's life. Under a defined
contribution plan, there is no promise of what the contributions will be worth upon retirement.
Diff: 2
LO: 10.1, Section 10.1
Bloom: C
AACSB / IMA: none; none
AICPA: FC: none
Min: 1

2) Which of the following refers to a plan that defines how much your employer will deposit into
your retirement account?
A) Pension plan.
B) Defined contribution plan.
C) Defined benefit plan.
D) Long-term investment plan.
Answer: B
Explanation: A defined contribution plan sets the amount(s) your employer will deposit into
your retirement account. You may also be able to contribute to your retirement account, and in
some situations, your employer may offer to match your contributions.
Diff: 1
LO: 10.1, Section 10.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1




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,3) Which of the following offers no promise of what the money will be worth when you retire?
A) Pension plan.
B) Defined contribution plan.
C) Defined benefit plan.
D) Long-term investment plan.
Answer: B
Explanation: Under a defined contribution plan, there is no promise of what the contributions
will be worth upon retirement. Your employer will deposit money into your retirement account
from your earnings or their discretionary or matching contributions. Since the account is self-
managed, its future value depends on your contributions, time and investment performance. A
pension plan, such as a defined benefit plan, provides a retiree with a guaranteed payment from
an employer for the remainder of the retiree's life.
Diff: 2
LO: 10.1, Section 10.1
Bloom: C
AACSB / IMA: none; none
AICPA: FC: none
Min: 1

4) Which of the following represents a consistent standard of living between pre- and
postretirement?
A) Savings replacement rate.
B) Defined contribution rate.
C) Retirement savings rate.
D) Wage replacement rate.
Answer: D
Explanation: The wage replacement rate is a percentage, usually between 70% and 80%, that
represents a consistent standard of living between pre- and postretirement. The wage
replacement rate is typically less than 100% because you won't need to replace all your income
in retirement, such as retirement savings, mortgage and job-related expenses.
Diff: 2
LO: 10.1, Section 10.1
Bloom: C
AACSB / IMA: none; none
AICPA: FC: none
Min: 1




2

,5) What is the typical wage replacement rate?
A) Between 50% and 60%.
B) Between 60% and 70%.
C) Between 70% and 80%.
D) Between 80% and 100%.
Answer: C
Explanation: The wage replacement rate is a percentage, usually between 70% and 80%, that
represents a consistent standard of living between pre- and postretirement. The wage
replacement rate is typically less than 100% because you won't need to replace all your income
in retirement, such as retirement savings, mortgage and job-related expenses.
Diff: 2
LO: 10.1, Section 10.1
Bloom: C
AACSB / IMA: none; none
AICPA: FC: none
Min: 1

6) Which of the following refers to the percent of your income that you are putting aside for
retirement?
A) Wage replacement rate.
B) Retirement savings rate.
C) Savings rate.
D) Expense rate.
Answer: B
Explanation: A retirement savings rate is the percentage of your income that you need to put
aside for retirement.
Diff: 1
LO: 10.1, Section 10.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1

7) Which of the following refers to living longer than expected?
A) Longevity risk.
B) Market risk.
C) Liquidity risk.
D) Maturity risk.
Answer: A
Explanation: The risk of living longer than expectations is known as longevity risk. While
living long is a good thing, living beyond your targeted savings is a risk to your retirement plan.
Diff: 1
LO: 10.1, Section 10.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1

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, 8) How much is the average amount saved in retirement accounts for the U.S. household?
A) Less than $50,000.
B) $50,000-$75,000.
C) $75,000-$100,000.
D) More than $100,000.
Answer: B
Explanation: The average amount saved by working households in the United States in
retirement accounts is approximately $65,000, according to the Federal Reserve.
Diff: 1
LO: 10.1, Section 10.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1

9) How much is the average savings for those nearing retirement age?
A) Less than $100,000.
B) $100,000-$150,000.
C) $150,000-$250,000.
D) More than $250,000.
Answer: D
Explanation: The average savings for working households in the United States nearing
retirement age is $255,000, according to the Federal Reserve.
Diff: 1
LO: 10.1, Section 10.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1




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